Losing Spirit: Distributional Fare Effects of Ultra-Low-Cost Carrier Exit

Abstract

This thesis estimates the distributional fare effects of ultra-low-cost carrier exit, exploiting Spirit Airlines’ staggered financial collapse resulting from engine defects, a blocked merger, and bankruptcy, as plausibly exogenous variation in competitive structure. Applying the Callaway and Sant’Anna (2021) estimator to DB1B fare data across 28 treated and 225 control routes, I find that on routes where Spirit held above-median seat share, rival fares rose by 6.8 percent at the median, 13.4 percent at the 25th percentile, and 19.0 percent at the 10th percentile, all significant at the 1 percent level. On below-median routes, effects are zero. These results support the argument that the distributional pattern of ULCC competitive pressure documented for entry operates symmetrically in reverse, and show that fare increases following outright carrier exit substantially exceed those associated with the airline mergers antitrust enforcement is designed to prevent.